ABCAUS - Excel for Chartered Accountants
ABCAUS Menu Bar

Get ABCAUS updates by email

ABCAUS Logo
ABCAUS Excel for Chartered Accountants

Excel for
Chartered Accountants

Print Friendly and PDF

INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD

ITA No. 1796/Ahd/2011 Assessment Year: 2004-05
Amarshiv Construction Pvt Ltd (Appellant) vs. Addl CIT (Respondent)
Date: 09-02-2016

ORDER

PER RAJPAL YADAV, JUDICIAL MEMBER:
The assessee is in appeal before us against the order of the learned Commissioner of Income-tax (Appeals)-I, Baroda, dated 11.05.2011 passed for Assessment Year 2004-05.

2. The solitary grievance of the assessee is that the learned CIT(A) has erred in confirming the penalty of Rs.3,73,620/- which was imposed u/s. 271E of the Income-tax Act.

3. The brief facts of the case are that M/s. Amarshiv Construction Pvt Ltd had borrowed a sum of Rs.3,93,618/- from Shri Hasmukhbhai Manibhai Patel. Shri Hasmukhbhai Manibhai Patel had borrowed the money from Dakor Nagarik Sahakari Bank which was given as a loan to the company. The loan taken from the bank was to be repaid within a fixed period and the Director, Shri Hasmukhbhai Manibhai Patel failed to repay the amount. The Company has directly repaid the loan taken from Shri Hasmukhbhai Manibhai Patel to Dakor Nagarik Sahakari Bank . In this way, according to the Assessing Officer, the assessee has violated Section 269T of the Act by making repayment of alleged loan in cash. Accordingly, the ld. Assessing Officer initiated penalty proceedings u/s 271E of the Income-tax Act. He imposed a penalty of Rs.3,93,618/-.

4. Appeal to the CIT(A) did not bring any relief to the assessee.

5. The ld. Counsel for the assessee at the very outset submitted that loan was taken by the assessee from a Director under compelling circumstances. It was credited in the account of the Director, maintained with a Cooperative Bank. Strictly it was not paid in cash; rather it was deposited in the account of the Director. Ld. Counsel for the assessee further apprised us the scheme of Act under which Section 269SS and 269T were brought on the statute book. According to the ld. Counsel for the assessee, there is no mala fide intention at the end of the assessee. Entries have duly made in the books of the accounts of the assessee-company. He further relied upon the order of the ITAT, Kolkata Bench in the case of Mahmood Associates (P) Ltd. vs. Joint Commissioner of Income-tax in ITA No.1112/Kol/2012. In this case, the assessee-company took loan from the Director in cash, amounting to Rs.3,98,719/-. The Assessing Officer has imposed a penalty equivalent to this amount u/s 271D of the Act. The Tribunal, after referring to the decision of Hon’ble Madras High Court, held that the loan taken from a Director does not fall within the ambit of expression “deposit” and therefore, if some loan was taken from the Director, then it cannot constituted that the assessee has violated section 269SS of the Act. According to the ld. Counsel for the assessee, the same analogy is applicable in the present case because in this case also the amounts have been taken from the Director. The Assessing Officer has not initiated the penalty proceedings on receipt of money, but such penalty was initiated on repayment of the money. If the receipt of money was not being treated as ‘deposit’ as per the order of ITAT, Kolkata Bench, then its repayment would also not come within the ambit of Section 269T and therefore, no penalty is imposable. On the other hand, ld. Departmental Representative relied upon the order of the Assessing Officer.

6. We have duly considered the rival contentions and gone through the record carefully. Similar issue was considered by the ITAT, Kolkata Bench (supra). The observations, including taking cognizance of the facts by the ITAT, Kolkata Bench, are worth to refer. They read as under:-

“5. At the outset, Ld. Counsel for the assessee Shri Subhas Agarwal contended that the admitted facts are that the unsecured loan of cash is taken from the director by the assessee company. He stated that the assessee company M/s. Mahmood Associates Pvt. Ltd. received a sum of Rs.3,98,719/- in cash from Shri Md. Mahmood, who is director of the assessee company. He stated that the issue of receipt of cash loan by assessee company from its director is now settled issue by various High courts. First, he relied on the decision of Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Indore Plastics P. Ltd. (2003) 262 ITR 163 (MP), where Hon’ble High Court has observed that (from head notes) “the assessee was a private limited company. One RCK was its promoter and director during the period relevant to assessment year 1990-91. During that year, the assesseecompany accepted deposits in cash from the promoter from time to time aggregating in all Rs. 2,31,320. According to the Assessing officer as also the Commissioner (Appeals), the said payment was in contravention of section 269SS of the Income-tax Act, 1961, and the assessee was liable to pay penalty under section 271D. However, the Tribunal vacated the penalty so imposed on the finding that the said payment was not by way of deposit or loan, but towards adjustments of the amount drawn by the promoter from the company's account. On an application praying for an order calling for a reference from the order of the Tribunal:

Held, that the finding arrived at by the Tribunal was a finding of fact and, therefore, did not give rise to any question of law to be answered by the court.”

6. He also referred to the decision of Hon’ble Madras High court in the case of CIT Vs. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad), wherein the Hon’ble High court has held as under:

“We heard the arguments of learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr. S. V. S. Manian was one of the directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of account of the assessee in the name of Mr. S. V. S. Manian. Mr. S. V. S. Manian used to pay the money in the current account and used to withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dated September 29, 1997, and in that letter he explained that the amount received from Mr. S. V. S. Manian had been shown as “secured loan from directors" in the balance-sheet. As per the Companies Act, under the Companies (Acceptance of Deposits) Rules, 1975, under rule 2 (b) (ix), deposit does not include any amount received from a director or a shareholder of a private limited company. Therefore, the transaction between the appellant and the director cum shareholder is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction.

In the foregoing conclusions, we are of the view that since the said transaction does not fall within the meaning of loan or advance, there is no violation of section 269SS of the Income-tax Act. We find no error in the order of the Tribunal and the same requires no interference. Hence, no substantial question of law arises for consideration of the court. Accordingly, we dismiss the above tax case.”

7. Ld. Counsel for the assessee also referred to the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Natvarlal Purshottamdas Pareekh (2008)303 ITR 5 (Guj), wherein Hon’ble High Court has reproduced para 18 of Tribunal’s order and confirmed the issue as under:

“18. As discussed above, the annexure attached to the penalty order goes to show that each of the family members of the assessee and each one of them was having sufficient opening balance as on April 1, 1990. After that we have to look into sources of the amounts received by the assessee on behalf of his family members as the same is an important factor. Handsome amount has been received on account of maturity of NSCs and then most of the amounts have been credited on account of gifts received from one family member to other and that was through journal entry except Rs. 32,000 which was gift by one family member to other. These amounts were not received by the assessee in cash as these were mere book entries. These amounts cannot be equated with any of the amounts involved in the cases relied on by both the parties as in those cases, the amounts were received by the assessee as deposits in cash and that is not the position here because these were book entries except the amounts of NSCs and other cash loan of Rs. 11,910. In the same breath, the amount of Rs.1,920 credited on account of rent and Rs.24,360 credit in the account of Harendrakumar and Hiteshkumar cannot be treated as deposits or loan because these were credit entries on account of salary and bonus. Accordingly, the crux of the matter is that most of the amounts as referred to above was based on mere book entries and not received in cash by the assessee from family members except the amount of NSCs and other cash loan and that cannot be treated as loan or deposits for the purpose of section 269SS.”

8. Ld. Sr. DR Shri Kanhiya Lal Kanak was specifically asked whether the factum of receipt of unsecured loan in cash by assessee company from its director is in dispute or not. He categorically admitted the fact and stated that yes, the unsecured loan in cash is received by assessee company from its director.

9. We have heard rival submissions and gone through facts and circumstances of the case. We find that the facts are that the assessee company Mahmood Associates (P) Ltd. received cash loan from its director Md. Mahmood. In view of the above proposition of law laid down by various High Courts i.e. Hon’ble M.P. High Court in the case of Indore Plastics P. Ltd., supra, Hon’ble Madras High Court in the case of Idhayam Publications Ltd., supra and Hon’ble Gujarat High Court in the case of Natvarlal Purshottamdas Pareekh, supra, we find that the penalty levied by JCIT, Range-12, Kolkata and confirmed by CIT(A) needs to be quashed. No contrary decision was pointed out by Ld. Sr. DR despite we specifically asked him whether any High Court decision is available against the assessee or not. In term of the above, we delete the penalty levied by JCIT and confirmed by CIT(A).

10. In the result, appeal of assessee is allowed.”

7. Apart from the above, the assessee has demonstrated that under the compulsion the payment was directly credited in the bank account of the Director. Strictly it was not paid in cash. On due consideration of these facts in the light of ITAT, Kolkata decision (supra), we are of the view that the assessee has demonstrated a reasonable cause for not visiting it with penalty. Therefore, we allow the appeal of the assessee and delete the penalty.

8. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the Court on 9th February, 2016 at Ahmedabad.

(MANISH BORAD)                   (RAJPAL YADAV)
ACCOUNTANT MEMBER        JUDICIAL MEMBER

Loan from director is not deposit and penalty u/s 271D-E cannot be levied for violation of section 269SS or 269T | 11-02-2016 |

aaaaaaaaaaaaiii
Don’t Forget to like and share ABCAUS Face Book Page